A Cautionary Tale for On-Line Traders

Susan Kazmaier: “I am writing regarding a problem I had fairly recently with Ameritrade. I sold shares of TSATA on April 22nd, the day this stock was downgraded from the Nasdaq to the OTC bulletin board (although I wasn’t aware it was happening that day). I sold the shares over the internet trading system, and the order screen displayed 2 7/32 as the bid, ask. This happened to be the previous day’s close, but I thought that was a coincidence. It turns out that it wasn’t a coincidence, the internet wasn’t showing me the correct price, which was actually 1 3/8! (Fortunately, still more than I paid for it — but I would not have sold it at this price.) I have corresponded with Ameritrade, and one of their lawyers basically told me that my account is a self-managed account and quoted me the ‘Data Not Guaranteed’ terms and conditions. Ameritrade has not explained why I was not shown the correct price, nor why I was even able to trade an OTC BB stock over the internet. Their normal policy is that bulletin board stocks can only be traded through a representative. This experience has been disturbing, and I am almost certain to transfer my account out of Ameritrade. It also speaks of the risks of trading over the internet.”

Sorry you had this problem, Susan. I also use Ameritrade … but I take very seriously all their little warnings about “delays” and such. And I almost always use “limit” orders — I would with any broker — which prevent this sort of thing from happening.

Unless I’m missing something here, I don’t think you have a claim. Still, it’s a bummer — and perhaps yet one more reason not to try to outperform the pros, almost all of whom can’t outperform the averages over the long run, either. (Though it’s fun.)

Coincidentally, I have dabbled in TSATA, as well. The story, if I remember it right, is that John Malone paid $8, and John Malone is not the kind of guy to lose money. I bought some at $1.75 and then more at 75 cents. Then something happened and the stock suddenly jumped to nearly $5 (where I sold the shares I’d paid $1.75 for) and fell back almost immediately into the $2+ range, where it is today. So I’m very nicely ahead of the game with TSATA, and hoping for more.

This may sound like easy money, but bear in mind that when you trade in and out this way, your partner Uncle Sam takes a big chunk of any profit. And bear in mind, too, that it doesn’t always work. (To say the least.) To take just one fairly recent example: Ron Perelman, also not the kind of guy to lose money, had both money and ego tied up in Marvel Comics — and it crumbled to dust.

If I get lucky, my wonderful TSATA profit may one day equal my Marvelous loss.